Nordstrom Finds Upscale Shoppers Defaulting on Loans, Too
By David Phillips
December 11th, 2008 @ 8:27 pm
Categories: Retail, Stocks
Tags: test, Nordstrom Inc., Credit Card, Sales Channel, Financial Services..., Sales, David Phillips
Nordstrom Fashion Reward CardsAre upscale shoppers less susceptible to economic downturns? Luxury retailer Nordstrom is now acutely aware that even the wealthy are holding back on purchasing new holiday fashions, and with housing values still in freefall (particularly in California, where one-third of its stores are located), credit delinquency rates are rising, according to its third-quarter 2008 10-Q regulatory filing:
* Bad debt expense increased for the quarter and nine months ended November 1, 2008 compared to the quarter and nine months ended November 3, 2007, due to increased delinquencies and write-offs reflecting current consumer credit trends, as well as reserves for higher projected losses inherent in the current receivable portfolio.
Nordstrom ended the third quarter with a total delinquency rate (balances more than 30 days past due) of 3.2% and net charge-offs of 5.7 percent, up from 2.4% and 3.4% in the prior nine-month period. For the nine-months ended November 1, total bad debt expense (recorded in SG&A) increased 37 percent year-on-year to $106 million.
At November 1, Nordstrom held average accounts receivable of $1.9 billion, up from $1.7 billion last year. The trade receivables relate principally to Nordstrom private label and co-branded VISA credit cards.
Unlike many retailers, Nordstrom runs its own credit card business. Looking forward, key credit metrics suggest the company can no longer depend on credit card purchases and related Reward Programs to fuel comparable same-store sales growth. For the nine-months ended November 1, growth in credit volume and total finance income declined to 9.3% and 0.8 percent, from 18.3% and 19.7% in 2007. Management expects fiscal fourth-quarter same-store sales to decline 13 percent to 16 percent.
Chief Financial Officer Michael Koppel told analysts on the earnings call that the company would continue working to mitigate additional credit risks by “monitoring on an account-by-account basis people’s credit history and their current experience as it relates to mortgage payments and other such liabilities.” Ironically, though Nordstrom remains “committed to continued funding of loyal and good customers who are shopping with Nordstrom,” the company took the credit crisis as an opportunity to raise annual interest rates for cardholders – even for those who maintain good credit scores.
Management believes its credit card portfolio remains “high quality” compared with the credit card industry as a whole, for super-prime and prime customers make up approximately 90 percent of total spending on the credit cards. Nonetheless, given the economic backdrop, the company expects net charge-offs and delinquency rates to rise in the fourth-quarter. Every one-percent change in charge-offs equates to about a three cent change to share-net.
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